Closed-loop supply chains with product remanufacturing: Challenges and opportunities

Abstract

The body of knowledge regarding remanufacturing's role in closed-loop supply chains (CLSC) has been dominated by case studies and analytic models (either empirically informed or fully stylized). The objective of this special issue is to offer insights into the pressure points in remanufacturing-focused CLSCs, identify and explore new policies and solutions that mitigate these pressure points, and outline future research opportunities.

Research in this area uses various terms for closely related, if not identical, concepts: CLSC with remanufacturing, Reverse Logistics, OEM servicizing with product remanufacturing, and most recently, the Circular Economy (CE). While the CE literature has embarked on a vigorous effort to create a knowledgebase to develop systems that will be more environmentally friendly as well as economically viable, some of this knowledgebase already exists in the previous research in remanufacturing, reverse logistics, CLSCs, or product servicizing with remanufacturing. Efforts to re-develop this understanding from scratch are more likely to hold the field back rather than help it focus on issues that are different under the Circular Economy banner.

The objective of this editorial is three-fold. First, we aim to identify significant research opportunities in CE that are not well-documented and for which new knowledge is needed. In doing so, we hope to highlight these knowledge gaps, map the research landscape of CLSCs with remanufacturing, and inspire future studies. Second, academic research often runs the risk of being insular and often, in the pursuit of academic excellence, somewhat disconnected with reality. We articulate the characteristics of future articles that would likely make them more impactful to industry, helping bring the social and environmental change that CE promises. Third, we describe the exemplars presented in this special issue that do have these characteristics with some important insights for making CE business models successful.

We see several key opportunities to enhance our knowledge about CE based on CLSC with remanufacturing.

In this section, we outline fundamental properties of research aimed at supporting CE implementation and the realization of its benefits by bridging an emerging gap between theory and practice.

The articles in the special issue showcase the characteristics described above. Denizel and Schumm (2024) examine apparel and textile (AT) CEs and discuss the challenges and differences relative to CEs commonly used in other industries, such as consumer electronics. The authors find industry level differences in product acquisition, processing, and material recycling. They note that the scalability of remanufacturing processes within the AT industry presents a significant challenge due to their labor-intensive and time-consuming nature. One of the greatest differences is that AT CEs are not, for the most part, profitable (while remanufacturing is a profitable activity in many industry sectors). This lack of profitability is attributed to scalability issues, impacting the ability to efficiently process used garments, and affecting the economic viability of remanufacturing initiatives. Additionally, the limited availability of high-quality end-of-use garments suitable for recycling presents challenges due to inconsistent quantities and technological limitations in recycling processes to efficiently handle a broader range of materials. Furthermore, consumer electronic products are typically designed with transferable modular parts and components that enable component-level remanufacturing or repurposing, unlike the AT industry, where components of end-of-use garments cannot be easily transferred to another garment.

This work also highlights important differences in acquisition strategies between AT and consumer electronics industries. In the AT industry, luxury brands often prefer self-collection of their own products, budget brands collect EOU garments from any brand using third-party collectors. In contrast, consumer electronics industry manufacturers typically collect their own brand's electronics, maintaining tighter oversight on the supply chain. Addressing these challenges requires policy interventions, such as the WEEE Directive in the EU to address the need to recycle, rather than landfill, consumer electronics and electronics devices. The research confirms that as of now, we do not know enough about AT CLSC's to suggest effective public policy changes that are specific to different product categories with different CE configurations. As such, this article shows that there is a pressing need and continued value in documenting and developing CLSC frameworks for other classes of products and industry categories.

In consumer-facing CE systems, there is a growing body of empirical evidence regarding consumer perceptions of remanufactured products, with conflicting findings. For example, Guide and Li (2010) have shown that the sale price of new products in controlled auctions is not impacted by the presence of remanufactured product alternatives. In this special issue, Zheng et al. (2024) examine markets for consumer electronics where remanufactured products are introduced. They discuss how this impacts consumer purchase intention and the sales of brand-new products. They find that some remanufactured consumer electronics can decrease the market value for new versions, leading to cannibalization of their sales.

To unpack this conflicting finding, the authors conduct experiments to emphasize the importance of distinguishing between markets with established and unestablished technology standards. They conclude that for products using established standards, refurbished products negatively affect sales due to cannibalization effects and high consumer quality expectations. Conversely, for products with unestablished standards, remanufactured products have a positive effect on sales by signaling an increased user base and the availability of complementary products. We concur with the authors' call for further research that considers behavioral mechanisms of network effects impacting consumer choice between remanufactured and new products, multiple brand and product generations, and the effect of competition. Moreover, further research could explore strategies to mitigate the adverse impact of remanufactured products on sales of brand-new products that use established technology standards. In line with the broader scope of CLSCs research, there is a need for more studies that explore the effect of remanufactured products in shaping consumer choice across various industries.

In a detailed study of consumer choice, Abdulla et al. (2024) conduct an experiment to examine how consumers' willingness to pay (WTP) for items is impacted through educating them about the remanufacturing process and their physical exposure to remanufactured products. The authors find that merely educating consumers about remanufacturing processes does not significantly increase the appeal or WTP for remanufactured consumer products. Even after highlighting quality and cleanliness equivalence with new products, consumer perception toward remanufactured goods remains largely unchanged. Conversely, providing physical exposure to remanufactured products in their original packaging substantially increases both the appeal and WTP for these items. The effect is observed across various products, from typical consumer electronics, such as Bluetooth headsets, to more sensitive personal items such as electric toothbrushes. The study underscores that the primary driver behind increased appeal and WTP is real physical exposure to products rather than virtual simulations or increased information availability. This implies that consumers prefer hands-on experience over informational descriptions alone. The research suggests that the common practice among online retailers of providing more information about the remanufacturing process might not be sufficient, indicating opportunities for retailers to leverage brick and mortar channels for the sales of remanufactured products. The authors propose that future research looks at different product categories, teases out the role of third-party remanufacturing, and explores the impact of more comprehensive educational strategies on consumer perception of remanufactured products.

We identify several key research opportunities that are not currently adequately addressed in CLSC research but are crucial for the successful implementation of CE. First, in analytical research that uses models for forward-looking studies on CE dynamics, the primary focus should be on realism. This involves both leveraging empirical research and data to inform model parameters and structure and, essentially, using model results to provide actionable managerial insights and inform policy design. Second, the role of IT and sensor data obtained through IoT within CE configuration requires careful study. For example, digital twins can significantly improve predictability in the quality of returned products, but in some industries or with certain consumer-facing products, comprehensive data collection during product use might be restricted, necessitating further research. Third, our understanding of behavioral operations in a CSLC setting remains very limited. The behavioral problems of managers procuring used products to serve as inputs for OEM or third-party remanufacturing are not well understood. Fourth, there is a lack of research that identifies the implementation scenarios favorable to CLSCs with remanufactured products. When CSLCs are not profitable, how do we develop specific context-dependent public policies that encourage their growth? Finally, we have found almost no research exploring the development of accounting and finance tools that enable the development of CLSC.

We strongly believe that the complex structure of CLSC settings, rich with feedback mechanisms and information and material delays, calls for more empirical research solidly grounded in industry data and realistic experimental studies. These studies will provide key parameters for advanced analytical models that leverage non-linearities, delays, and behavioral feedback loops. By integrating data and models and harnessing a continuous flow of information from the industry to data, model, results, and back to the industry, we can enhance managerial decision-making and design effective, efficient policies that promote and support the potential of CE in reducing waste and curbing the extraction and use of virgin raw materials. A circular economy built on CLSCs with remanufacturing can provide substantial sustainability and environmental advantages, but unlocking its full potential requires more contextual research that builds upon prior studies and addresses new challenges, ensuring practical solutions and maximizing benefits. We aim to inspire future work that will address these challenges in order to help CE systems realize their full potential.